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State pension age review: allow early access for those with lower life expectancy

Ahead of publication of the interim report from John Cridland’s review of the state pension age, expected on Thursday, Hargreaves Lansdown has written to the review, proposing early access to the state pension based on life expectancy.

Our proposals include:

  • Early access to state pension from age 60 for those in poor health
  • State pension to be expressed as both an income from State Pension Age (SPA) and a capital sum if accessed ahead of SPA
  • Capital sum would be discounted to take account of early access
  • Individuals would use the capital sum to purchase an annuity from an enhanced annuity provider, where it gave a higher income than the state pension

Tom McPhail, Head of retirement policy:

"The state pension age needs to rise, in order to reflect general improvements in life expectancy across the population, because otherwise the whole scheme will eventually become unsustainably expensive. However we also need to accommodate those with poor life expectancy. We could vary the state pension based on gender, post code, occupation or even ethnicity but these are both arbitrary and in some cases illegal because they are discriminatory. A fairer and more efficient approach would be to use the underwriting expertise of specialist annuity providers, to target higher payouts to those individuals who have a lower life expectancy, whatever the reason for it."

Hargreaves Lansdown’s proposal involves offering individuals the choice to take their state pension early (from age 60) as a lump sum, subject to the following conditions:

  • The lump sum would be reduced to reflect the fact that it was being taken early
  • It would have to be used to buy an annuity
  • Individuals could only use this facility if it produced a higher rate of income than their full state pension

This system would work for individuals with reduced life expectancy because annuity providers could offer them a higher rate of income. For example:

Richard is expecting a state pension of £160 per week from age 67 (under current rules). This income might normally cost around £275,000 if provided on the open market.The state offers him the option of a lump sum at age 62 of £165,000. Because he is in poor health, an annuity provider offers him an income of £175 a week. This means Richard is able to take his state pension early and still receive a higher income.


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